Merrill Lynch deal with Enron alleged

By William Roberts
Bloomberg News Service

WASHINGTON — Enron Corp. pressed Merrill Lynch & Co. to upgrade its investment recommendation on the energy trader's stock in 1998 in exchange for investment banking business, Senate investigators say.

Enron had excluded Merrill as a manager of a $750 million equity offering because of the "neutral" rating placed on its stock by analyst John Olson, the investigators said, citing internal memos, e-mails and interviews. Merrill president Herb Allison called Enron chairman Kenneth Lay, the investigators said, and the company was hired as co-manager for the offering.

Merrill later changed its Enron analysts, and its rating on Enron's stock was upgraded from Olson's "neutral" to Donato Eassey's "accumulate."

"It is clear that your responsive message was appreciated by the company and any animosity in that regard seems to have dissipated in the ensuing months," the firm's investment banking division wrote in an e-mail to Allison on Jan. 18, 1999. "Total fees to Merrill Lynch for these two transactions alone should be $40-50 million."

Enron's dealings with Merrill will be discussed today during a hearing of the Senate's Permanent Subcommittee on Investigations, which released some of the documents it is entering as evidence.

Schuyler Tilney, head of energy investment banking at Merrill and an author of an April 1998 memo asking Merrill's management to intervene with Enron, will invoke his Fifth Amendment right and refuse to testify, subcommittee staff said.

Eassey denied in a telephone interview any connection between the firm's investment banking business and his rating on Enron's stock. Eassey was among the first analysts to downgrade Enron in August 2001 when chief executive officer Jeffrey Skilling resigned.